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Chrysler eyes up IPO - it's a gamble. Image by Chrysler.

Chrysler eyes up IPO - it's a gamble
IPO for Chrysler could cause big problems and spell the end of many planned cars.
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What's the news?

Normally, Initial Public Offerings (IPO), the point where a company decides to list and sell its shares on a stock exchange, is a time for celebration, pageantry and probably confetti. Not this one. The announcement of an intention to sell Chrysler shares to the public and investors has brought with it rancour, dispute and recriminations from the very company which already owns a majority stake in Chrysler; Fiat.

Fiat owns 58.5 per cent of the American giant, a stake which it bought, and subsequently expanded, after Chrysler slipped into bankruptcy and a bail-out from the US government in 2009. Fiat wanted Chrysler's global - and especially North American - reach and Chrysler needed Fiat's cash and its small and compact car expertise.

The marriage has hitherto been a successful one. Chrysler's sales have rebounded, its profits have risen and it has now become so successful that it is effectively bankrolling the Fiat car-making empire, as Fiat itself is now mired in the fall-off in its core European car sales.

Fiat doesn't want Chrysler to list on the stock exchange. Fiat wants to buy the rest of the shares in the company, fold it fully into the Fiat family and get hold of the approximately $12 billion in cash or cash equivalent assets held by Chrysler. Such a war chest is crucial to Fiat boss Sergio Marchionne's plans to revitalise Fiat's own product line, turn around its troubled Alfa Romeo brand and also to create a new range of compact, affordable Chryslers, Dodges and Jeeps - an area where the American company admits it is currently behind the curve.

So why the IPO? Well, this is less a case of straightforward corporate finances and more a case of corporate brinksmanship by Chrysler's other major shareholder, the UAW. That's the Union of Auto Workers, the organisation that represents the factory and office workers of the Detroit 'Big Three' - Chrysler, Ford and General Motors. It was the UAW that took on major shareholdings in both Chrysler and GM as they slipped into bankruptcy, with the shares being seen as a guarantee of a future revenue stream to fund the health care and pension costs of older UAW members - obligations that the UAW agreed to take on in order to clear the balance sheets of the car makers so that they could become profitable again.

Thus far, the plan has worked well but the UAW is known to be sceptical, if not downright hostile, towards Marchionne's plans, and in particular the price he and Fiat are willing to pay for UAW's stake in Chrysler. UAW reckons that the share is worth $5 billion. Marchionne has baulked at that, and he may be right - General Motors has just announced that it will buy back the UAW stake in itself for $3.2 billion.

UAW though is calling Marchionne's bluff and the IPO is a two-pronged assault. It will prevent Fiat, for the moment, from snapping up the UAW's share and it will also help to put a value on that share.

It's a dangerous game though. Fiat has responded brusquely to the announcement of the IPO, saying that "Although a registration statement has been filed there can be no assurance that an offering will take place." Moreover, Fiat has also indicated that it may well reconsider its ownership of Chrysler, and Chrysler's access to Fiat's technology including diesel and down-sized turbocharged petrol engines. If Fiat were to row back on its Chrysler involvement, the American company's future prospects would look grim indeed.

Then again, Fiat would also be wounded by such a move, effectively cutting off its nose to spite its own face. Chrysler's profits ($507 million in the second quarter of this year) are effectively keeping Fiat afloat, as it sees its European market share fall from 6.5 per cent to 6.2 per cent - below even that of BMW. Fiat has ambitious plans to regenerate its own brand, as well as those others that it owns, including Alfa Romeo and Maserati, but those plans will need both time and investment cash to come to fruition.

Anything else?

If Fiat does row back from Chrysler, or abandon it altogether, then that could spell curtains for both car makers, for thousands of jobs and for some of the most iconic brands in the motoring firmament. The UAW's push for an IPO is a high-stakes gamble, with billions on the table, and neither of the players seems to be holding any aces.

Neil Briscoe - 25 Sep 2013    - Chrysler road tests
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